Sunday, December 30, 2012

That was the year that was

According to the U.S. Bureau of the Census the median family -- that family exactly at the mid-point of the wealth ladder  --- saw its net worth collapse. (Net worth is all assets minus all liabilities.) In 2005, the median family's wealth was valued at $102,844 (in inflation adjusted dollars.)  By 2010, the latest Census figures showed a drop of 35 percent to $66,740. As of November, 2012,   20 million Americans without the full-time jobs they need of which 4,707,000 have been unemployed for more than 26 weeks, and 21 % of all U.S. children live in poverty.

Meanwhile, the super-rich are flying even higher.  Forbes Magazine reported that the richest 400 Americans increased their wealth by $200,000,000,000 (that's $200 billion), pumping up their collective wealth from $1,500,000,000,000 to $1,700,000,000,000 ($1.5 trillion to $1.7 trillion.)   On average, the richest 400 Americans saw their wealth go up by $500 million each in only one year -- a bad year, no less, for the economy.  All totaled, the 400 richest Americans have the same amount of wealth as approximately 25.5 million middle income families in the center of the wealth distribution. The 400 wealthiest Americans have more wealth than the bottom half (150 million) of all Americans.

The richest 1% are households with incomes over $500,000 a year. The average income of the richest 1% is $1.5 million. Their average wealth (stocks, bonds, real estate, etc) of the richest 1% is over $5 million. The richest 1% have 36% of all private wealth, more than the bottom 95% combined. America's richest 1% have gotten almost all of the benefits of economic growth in terms of income and wealth, while at the same time paying a smaller share of taxes. Since 1979, the richest 1% have taken in almost 60% of national income gains. The inflation-adjusted average incomes of the 1% grew 224% during this period; the bottom 90% saw their incomes rise by just 5%. In 1979 the top 1% earned 8% of national income. Now they have about 22% of national income.
The London Inter-bank Offered Rate (Libor) is the rate that the largest banks doing business in London (which includes all the big American banks) charge each other for overnight loans. It sets the basic interest rate on many adjustable loans associated with credit cards, adjustable mortgages and other commercial loans. It is one of the most important interest rate in the world. By manipulating the Libor rates, the bankers could cash in on bets they were making on financial instruments that were sensitive to those rates. If they needed the rates to nudge up to win their bets, up it went. If the bet was on securities going down with Libor rates, down they would go. That's exactly like a bookie fixing the biggest horse races in the world after it starts so that he can win his bets. Who will be punished for this blatant financial crime? The banks will pay settlements from profits, not from the personal accounts of the bankers. And the fines will be moderate because "prosecutors are trying to strike a balance between putting a company out of business and letting it off," reports the New York Times.

Imagine what would happen to you if you got caught laundering cash for the world's leading drug cartels. Imagine further that you found ways to illegally facilitate moving money for countries under international trade sanctions. HSBC was fined $1.9 billion for just that, which amounts to approximately just 5.5 weeks of its 2011 reported profits.

Wall Street banks created hundreds of billions of dollars of mortgage-backed securities that were toxic and often designed to fail. They knew that it was just a matter of time before mortgage foreclosures would destroy the value of those securities. Yet, all the largest U.S. banks packaged and sold toxic mortgages to investors all over the world, who were told these were sound investments. Sometimes the very same banks joined with hedge funds to profit by betting that the toxic securities would collapse.  Meanwhile, they pumped up the housing market until it burst all over us. "Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and others, related to more than $1 trillion worth of securities backed by residential mortgages." said the NYT. But as we have seen the authorities shy away from imposing meaningful punishment on banks from fear of the repercussions on the economy.

from here

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